Social Responsibilities of the Businessman

13. Proposals: Changes in Business Organization and Practice

13 Proposals: Changes in Business Organization and Practice The American people are in favor of continuing the system of private enterprise. They wish to preserve the freedom, the decentralization of decision-making, the Ilexibility, the incentives, the initiative, and the opportunity which this system provides. And they wish to reduce governmental regulation of business to the practicable minimum. On the other hand, and perhaps more urgently, they hope to avoid the instability, the insecurity, the injustice , and the social inefficiencies inherent in a system of unregulated and irresponsible private enterprise. Their aim is to evolve forms of social control under which business will remain essentially free and yet will serve the broader interests of society. There is no simple or ready-made formula for achieving this aim. There is no "ism," which will provide the solution. The aim can be realized in part by allowing free play to self-interest as tempered by competition, in part by governmental regulation and intervention, and in part through the voluntary assumption of social responsibility by businessmen and groups of businessmen. This third method involves, in a nonpolitical sense, the democratization of business essentially under private management. Insofar as this third method is effective in bringing private business into conformity with evolving social needs, governmental regulation is unnecessary . This chapter will present several constructive proposals for increasing or extending the effectiveness of social responsibility as a factor in business management. These are relatively simple measures , some of which have already been tried or are in the process of development. An individual business might adopt any of them voluntarily without in any way jeopardizing its status or its freedom of action. I 52 SOCIALRESPONSIBILITIES OF THE BUSINESSMAN COMPOSITION OF BOARDSOF DmECTORS First, the composition of boards of directors could be consciously modified to include one or more directors who represent the points of view of workers, suppliers, consumers, the local community, or the "general public." Various proposals along this line have been made.' It has frequently been suggested that groups other than stockholders should have the right to select one or more directors. The recent German plan of "codetermination" is an extreme form of this idea," It has also been suggested that some directors should be appointed by a designated public agency. Another much more modest proposal has recently been made by Beardsley RumP He suggests: "As a first step, one director be elected or re-elected and he be asked to act as 'trustee' for one of the three parties at interest, other than the stockholders. Such a director-trustee might be assigned the interests of either the customers , or the vendors, or the employees, depending on the nature of the company's business. He would be the nominee of the management and of the existing board of directors and would be elected in the usual way by the owners of the company, the stockholders. During the experimental period of whatever length, no public announcement would need to be made that such a policy had been adopted." If the experiment worked out well, "the next step would be a director-trustee for each of the other interests-all depending on the nature of the company and whether the groups are important enough in the particular case to warrant specialized consideration." Mr. Ruml suggests that these trustee-directors be paid because their duties would be more exacting than the duties of directors 1For example, R. H. Tawney, The Acquisitive Society, New York, Harcourt, Brace & Howe, 1920, pp. 102-3; George Goyder, The Future of Private Enterprise , Oxford, Basil Blackwell & Mott, 1951, pp. 97-99; and E. A. Duddy, "The Moral Implications of Business as a Profession," [oumal of Business of the University of Chicago, April, 1945, pp. 72-73. Compare also W. O. Douglas, "Directors Who Do Not Direct," Harvard Law Review, 1934, pp. 1305-34; H. Maurer, "Boards of Directors," Fortune, May, 1950, pp. 107-8, 122-32; National Industrial Conference Board, Compensation and Duties of Corporate Directors, Studies in BusinessPolicy, No. 16, New York, 1946; M. E. Dimock, Bureaucracy and Trusteeship in Large Corporations, Temporary National Economic Committee , Monograph No. 11, 1940. 2 See Chapter 14. 3 "Corporate Management as a Locus of Power," New York University School of Law, Third Annual Conference on the SocialMeaning of Legal Concepts. CHANGES IN BUSINESS ORGANIZATION AND PRACTICE I53 have traditionally been. His concept of the duties of the trusteedirectors is suggested when he says, "Let...